The TCP/IP Of Money Mirage #ripple #stellar #blockstream #ethereum

“Strange days have found us
Strange days have tracked us down
They’re going to destroy
Our casual joys
We shall go on playing
Or find a new town”

The Doors.

Strange Days Stories:

# 1 Ethereum raised about $15m using crowdfunding, without Angels or VCs in a matter of weeks before they had built a product (ie the real Seed stage).

# 2 Blockstream has $21m of VC funding and the VCs have to at least proclaim that they don’t expect economic returns.

Then there is Ripple. Nobody has declared Ripple dead, but it’s founder has left saying he got it wrong. OK, so that is failed Bitcoin bet, nothing new there. Actually the funding history does look strange. There were two rounds billed as Angel, but all the investors are institutions. Then after two Angel rounds, there is a Seed round. I now officially declare:

“the names given to funding rounds are utterly meaningless and should be relegated to the dustbin of history”.

Then there is Stellar, which is billed as Ripple done right. The same guy who built Ripple and then declared it a failure got backed in a big round to “get it right this time”. Tolerance of failure is a good thing; it is a key factor in the success of the Silicon Valley model. However one expects at least a decent interval when the entrepreneur is “out in the wilderness” learning and reflecting.

The mirage that is beguiling investors is a logic that goes like this:

The winners at the bottom of the stack are the big wins. Look at Microsoft and Intel.

In the Internet era, the bottom of the stack is TCP/IP.

Bitcoin is the TCP/IP of money.

We cannot invest in the underlying Bitcoin technology, because it is open source.

So we will find something else at that layer to invest in.

I call this a mirage for the simple reason that we will never have anything like the Wintel era (i.e. a whole generation of technology controlled by two companies with proprietary technology). Nobody controlled TCP/IP.

Nobody will control the TCP/IP of money.

Although nobody controlled TCP/IP, $ billions of value was created at layers above TCP/IP. The same will be true of the TCP/IP of money. This layer will be totally free and open source. Almost everybody understands this. You can create huge economic value at the layer where you add value to merchants and consumers (eg Coinbase and Bitpay). So why are VCs even bothering at this lower TCP/IP like layer? The only logical reasons I I can see are:

The lottery ticket approach – a small bet on the remote chance of a massive outcome. This seems to explain the bets on Ripple and Stellar. The conversation here seems to be:

“It is unlikely that we can control the TCP/IP of money layer, but if we did the payoff is so massive that it is sensible to bet a few $ million on the possibility of that outcome”.

The Deus Ex Machina approach. This seems to explain the Blockstream investment. The conversation here seems to be:

“The Bitcoin ecosystem is threatened by fundamental issues related to mining (such as the 51% attack”). That could put the $ billions in value creation at risk. By putting in a few $ millions we protect the ecosystem and our ability to make money further up the stack and by working at this layer of the stack we create unique insights and connections”.

The Deus Ex Machina approach is no stranger than a BigCo like IBM contributing to open source in the knowledge that they make money at the layer above. I believe the Blockstream investors are sincere in wanting to protect the ecosystem because they have a lot at stake in that ecosystem.

I think Ethereum is the platform to bet on. It is clearly not yet delivered, so the proof of the pudding will be in the eating. However their direction is right and they have the developers and funding to deliver on the promise. Ethereum is totally open source and their funding means they don’t have to deliver economic returns to shareholders. This means that developers can build on top without worry. Ethereum is more than platform for payment networks. That is certainly one very big use case. but it is also a platform for any kind of transaction. Fundamentally, Ethereum is a platform that enables the Internet to get back to its decentralized roots and the implications of that are big and not confined to Fintech. The fact that Ethereum was funded through a currency sale is a non-issue in my opinion. Ether (that currency) is only used to buy resources on the decentralised Ethereum network and Ether is convertible to Bitcoin. Nobody views Ether as a rival to Bitcoin.

The debate will continue. A lot of that debate is highly technical and obscure to most people. However at core the issues are economic and driven by developer motivation. The debate will shape the services that consumers and businesses will use years in the future.

The TCP/IP of money should really as you write had been open and free but the problem is that it should really already have been here 5-10 years ago. To agree and setup a global, free, open TCP/IP of money will take several years (5-10 years?). Meanwhile Ripple is here and is tested by many banks and financial institutions. This cannot wait so Ripple will be the TCP/IP of money.
And about Stellar beeing Ripple made right. That is nonsense if you talk about the technology and protocol since it is not a new protocol but a copy/fork from Ripple (snapshot of Ripple 1 year ago. Since then the big Ripple Labs has further developed the Ripple protocol). Stellar is more of a vision of a peoples Ripple built bottom->up in a bitcoin-way. But Ripple has advanced their positions so much it is hard to not believe it will be the TCP/IP of money or “Internet of Value” as Ripple Labs CEO Chris Larsen calls it. But who knows, the Ripple technology/protocol may be bought and maintained in another way in the future?

None of us know how this will play out. I don’t and I “don’t have a horse in this race”. Ripple certainly has the early traction but I wonder how easy it would be for the FIs that use it today to switch? If it is easy, then a new entrant that is better in some way will score.

I can see that my post may look too dismissive of Ripple. I did not mean to do that. A Founder leaving and saying it is not working is a pretty bad sign but that could be just about personalities and nothing to do with the best solution.

Ethereum looks cool, but its almost laughable to call it a winner when it’s not even live yet. However, I know Vitalik and company are super smart so I’ll reserve judgement on Ethereum until the protocol goes live and gets stress tested over the course of a year+. Stellar is just a copy of Ripple with some tweaks, a different philosophy of how to distribute the internal currency token (STR), and support from Stripe who’s desperate for ways to remain relevant in the new age of crypto currencies. The Ripple protocol has been live for about 18 months, has real banking and financial players using it, and a $1.5 Billion market cap. The Ripple Labs team supporting the protocol along with Codius are top-notch. Thus, in my analysis, Ripple has the best chance to succeed as the most widely used “TCP/IP layer for money/value”. Sure, other 2nd gen protocols could be useful for nice use cases, but a dominant system will emerge. That system is likely to be Ripple!

Ryan, good points. I should have said “potential” winner for Ethereum. I did say not yet ready, proof of pudding etc.

I think that market cap is irrelevant.Its like Facebook vs every other social network, the rest are largely irrelevant no matter how cool the features. I am open to changing my mind on that, but it seems to me that whatever “token” gets used it is just like a loyalty bonus card to be used on that network and convertible into Bitcoin. Holding ETH or STR is like holding Hilton Honors – great for use at Hilton, lousy if I try to buy pizza with it.

The key metric is developer interest. In that area I think Ethereum scores. I am not sure what metrics one uses to score this. Is it something to do with Github or MeetUp?

The points you make about Ripple are valid. What I don’t understand (not being argumentative, I really don’t understand) is why the founder left and VCs who came in early did not re-up in later rounds. Is there a core technical problem, something do with the consensus algo? Or was it personalities and/or financial issues?

ONE of the founders left, that is important point.
Differences in personalities and vision of how everything should work and how currency should be distributed. But of course we don’t know what is real story, only they themselves know it.

The issue with Jed seems to have been an ideological one. He didn’t agree with Chris Larsen and company on how to distribute XRP. Fair enough. It’s that simple. However, given that Steller is a fork of Ripple and not a completely new protocol (like Ethereum) indicates that Jed still believed in the technology behind Ripple. But now, Stellar, Ethereum, etc. will be playing catch up and the only way they become successful is to build something vastly superior or find a niche use case to target that Ripple maybe doesn’t fit so well. It’s also possible a future exists where multiple 2nd gen protocols are successful and widely adopted. Given the success of Ripple thus far, along with A-List backing, smart and well connected advisors, and early support from banks, I went ahead and bet on the jockey not the horse. I do have a small investment in Ripple, but that’s only because of these things mentioned and because the “horse” (the Ripple Network) is actually really good! My personal user experience using Ripple has been great and I see some areas where an improvement over Bitcoin and areas where it can have a huge impact on the world of finance, payments and beyond!

The story goes that the founder McCaleb was forced to leave because the CEO and him had different visions for Ripple, and the board decided to support the CEOs strategy. I believe the CEO wanted a top-down approach, going aftet FIs and banks while McCaleb had other thoughts for Ripple as a more community-oriented and possibly wider (to the mass?) distribution of Ripples/XRP.

Reblogged this on Preston Byrne and commented:
That’s just it – Bitcoin *isn’t* the TCP/IP of money. It’s just an application (or if you’re getting technical about it, a “distributed application” or “DApp”). Bitcoin is too high up conceptually to serve this function – two or three layers of abstraction – from the blockchain as pure technology.

Blockchains aren’t about money. They’re about data. The currency/token/payments stuff is all just a big distraction.
PS: Eris Industries didn’t do a round nearly the size of any of those and we’re shipping code on Wednesday (open-source, baby).

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